Bloomberg News

Daycoval Sees Credit Glut in Latin America as Spreads Narrow

By Cristiane Lucchesi
November 20, 2012

Banks’ spreads on trade finance in
Latin America have narrowed as U.S., Canadian and Asian lenders
expand amid a withdrawal by European competitors.

“We have now in Latin America an oversupply of trade-
related lines” of credit, said Ricardo Gelbaum, director of
investor relations at Banco Daycoval SA (DAYC4), the Brazilian bank
specializing in loans to small- and mid-size companies. “And
this is happening even with most of the European banks out of
the market,” he said in an interview in Lima.

European banks are selling assets amid a squeeze in dollar
funding and to meet stricter capital requirements mandated by
the Basel Committee on Banking Supervision. Concern that
Europe’s debt crisis would harm banks’ creditworthiness has
limited their ability to generate financing denominated in
dollars as U.S. and other international financial firms
curtailed lending in the region.

“Banks from Japan and China are becoming very aggressive
in the offers they make, joining the Americans and Canadians and
compensating completely for the lack of lines from most of the
European banks,” said Waldir F. de Oliveira, trade finance
general manager at Sao Paulo-based Daycoval. “We were invited
to a lot of meetings from international banks here,” he said,
referring to the annual meeting in Lima today of Felaban, the
banking federation for Latin America.

Reduced demand for credit amid Brazil’s economic slowdown
helped cut the spread paid over Libor, the London interbank
offered rate, about 50 basis points in one year for trade-
related lines due up to 360 days, said Jair Beserra da Silva,
Daycoval’s trade-finance manager.

Credit Portfolio

Daycoval has a total portfolio of $350 million in trade-
related credit even though it could extend about $600 million
because of credit lines offered by other banks, according to da
Silva.

“The companies that we want to lend to don’t need credit,
and the ones that are seeking lines we don’t want to lend to,”
said Gelbaum, adding that the banks are being cautious because
of high delinquency rates. At Daycoval, loans at least 90 days
overdue increased to 1.7 percent of the total portfolio at the
end of the third quarter from 0.7 percent a year earlier.

“The companies in Latin America with better credit risks
now have a lot of credit alternatives that are sometimes more
attractive than trade-related loans,” said Ernesto Meyer, head
of syndicated loans in Latin America for Paris-based BNP Paribas
SA. “We are seeing a lot of local currency loans in most of
Latin America’s countries with a huge participation by local
banks in club deals,” he said, referring to loans offered by a
small group of banks.

Local-currency loans are usually better suited for project
finance because the cash generated is typically in local
currency, he said.

“Local banks are also growing bigger in trade-related
loans in dollars, a space dominated by international banks in
the past,” Meyer said. “There is a pricing convergence taking
place between local banks and several international banks
outside the U.S. and Japan.”

To contact the reporter on this story:
Cristiane Lucchesi in Sao Paulo at
clucchesi5@bloomberg.net

To contact the editors responsible for this story:
Steve Dickson at
sdickson1@bloomberg.net;
David Scheer at
dscheer@bloomberg.net